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Solid investment

Released at: 14:38, 16/10/2015

Solid investment

The second home market has received a boost from laws allowing the foreign ownership of property in Vietnam.

by Hoang Thu

When two long-awaited pieces of legislation - the Law on Housing and the Law on Real Estate Business - came into effect on July 1 industry insiders anticipated their impact would be significant as they mark an important step towards opening up Vietnam’s real estate market to overseas investment. 

Three months have now passed and the two new laws have indeed made a big mark on real estate in general and the second home market in particular, according to Mr. Nguyen Duc Quynh, Executive Assistant Manager at Furama Resort Danang, the name behind Furama Villas. “We have received a lot of attention from both overseas Vietnamese and foreigners since the day the new laws came into effect,” he told VET.

Foreign interest

Since July 1 Furama has sold 15 of its villas, bringing its yearly total to 23. Mr. Quynh feels quite surprised at the way people have reacted to the change. “It has opened up the market to all real estate investors and potential homeowners in Vietnam,” he said.  

At Flamingo Dai Lai Resort in the northern province of Vinh Phuc, the number of foreigners expressing interest in its villas has also seen a significant increase since July 1, rising three-fold compared with the same period last year. “Most are South Koreans and Japanese living and working in Vietnam,” said Ms. Le Thi Van Anh, General Director of the Hong Hac Dai Lai JSC, the owner of Flamingo Dai Lai Resort. The number of foreign tourists who come and stay at Flamingo Dai Lai Resort also sharply increased in 2014 and 2015. “We see visitors as potential buyers of our villas,” Ms. Anh added. 

Buying a second home is considered a good investment amid the recovery of the country’s real estate market after a long period of stagnation. The second home market in Vietnam is competitively priced compared with other regional holiday home destinations such as Phuket and Bali, while the quality of the developments in Vietnam is often higher than elsewhere, according to Mr. Matthew Powell, Director of Savills Hanoi.

Guaranteed rental returns and the ability to use other products in other locations within the developer’s portfolio of properties adds to the attractiveness of these projects, according to industry insiders.  

Furama Villas is in the process of completing the 108 villas planned. The project has already completed 64 villas and the central pool and restaurant and bar, with 130 seats, are all open. In the first eight months of this year Furama Resort Danang has established comprehensive cooperation with villa-for-lease owners and achieved a permanent occupancy rate of over 75 per cent.

Flamingo Dai Lai Resort, meanwhile, offers a program in which purchasers can own villas for a specific term, for example ten years, accompanied by other incentives when staying at the resort. “The program is suitable for foreigners who live and work in Vietnam for a specific term and would like to transfer their property in case they leave,” Ms. Anh said. 

The new laws on housing ownership for foreigners provide a 50-year renewable leasehold and allow them to lease their property, opening up the market to individual investors. According to Mr. Powell, Savills has received many inquiries from foreign investors seeking opportunities to invest in the second home market. “We are strong believers in the potential of this segment in Vietnam, as witnessed by some of our successful marketing projects such as Danang Beach Resort and the Mia Residences in Nha Trang,” he said.

Two villa projects - Premier Village Danang Resort and Naman Residences - were re-launched in the second quarter, providing 150 dwellings in total to the Da Nang market, according to Savills. The villa stock stands at 890 units in 16 projects. Projects with a strong developer reputation and close proximity to the beach and city center generated good sales in the quarter. Most transactions in Da Nang were for investment and buying to rent. From the second quarter onwards, 1,350 dwellings from 13 villa projects will enter the market and Son Tra district will continue to have the largest future villa supply.

Latest trend

The new law is believed to provide motivation to developers to kick off construction of second home products around the country. Such projects tend to be focused in Vietnam’s south but have also seen vibrant performance in the north over recent months.

In July the FLC Group officially opened sales at its FLC Samson Beach & Golf Resort in Sam Son town in the north-central province of Thanh Hoa. According to the developer, hundreds of villas out of the total of 1,000 were sold in the first sale offering.

The BIM Group has recently introduced Van Lien (Lotus Residences), a luxury resort and townhouse project in northern Quang Ninh province’s Ha Long city. The project has attracted a large number of investors and recorded a considerable number of purchases since its first sale in June. 

Hai Phong city, meanwhile, welcomed the announcement of a $1 billion Vingroup eco project in April. The Vu Yen Island Ecotourism Urban Area project is expected to begin construction this year, designed as an ecological urban area that will include ecological villas, a 36-hole golf course, amusement parks, and an ecological park, on an area of 872 ha. 
There have not been many new launches in the second home market if luxury villas from Vincom and the Sun Group were to be excluded, according to Mr. Richard Leech, Executive Director of CBRE Vietnam. “We expect this to increase in the short term with a variety of villa and apartment products on Phu Quoc Island and in Da Nang to hit the market soon, which will appeal to foreign buyers,” he added. 

Remaining barriers

As long as specific instructions relating to foreign housing ownership in Vietnam are yet to be issued the impact of the laws on the performance of the real estate market will not reach expectations. Many foreigners expressing interest at Furama Villas are still concerned with the nature of the law, according to Mr. Quynh. “Vietnam is yet to release specific instructions on how to apply the law in the correct manner,” he said. 

Real estate consultants are also waiting for detailed legal instructions. Once guidance has been given, Savills plans to market the second home sector more widely among its extensive residential client database regionally and globally. “In recent weeks we have seen a large increase in the number of enquiries from international purchasers,” Mr. Powell said. 
CBRE, meanwhile, expects an increase in requests for consultancy from real estate resort developers to continue as clarity settles on the details of the new Law on Real Estate. “Our clients have mainly been luxury developers with products selling at $800,000 +,” Mr. Leech said. “Obviously these are exclusive products with limited numbers available.” 

The potential for the development of a second home market that could make handsome profits has attracted the interest of many investors. Still, the high cost of management and operation might cause some problems, according to Mr. Quynh. And many projects are being developed in quite similar concepts due to the attractiveness of the segment, creating fierce competition. 

Although the second home market is still in the very early stages of development, the market in Vietnam can compete directly with that of Phuket or Bali, according to Mr. Powell. It is important that infrastructure improvements continue and in particular that there are more direct flights to Vietnam to ensure that the market is sustainable and buyers can achieve attractive returns. “The proposed changes to the legal framework in Vietnam will ensure that foreign buyers are able to buy properties with a secure title that in many ways is better than the property title offered to foreigners elsewhere in the region,” he added.

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